Hooper Holmes' (HH) CEO Henry Dubois on Q4 2015 Results - Earnings Call Transcript

| About: Hooper Holmes, (HH)

Hooper Holmes, Inc. (NYSEMKT:HH)

Q4 2015 Earnings Conference Call

March 29, 2016, 08:30 AM ET

Executives

Andrew Berger - Investor Relations

Henry Dubois - President and Chief Executive Officer

Steven Balthazor - Chief Financial Officer

Analysts

Joe France - Cantor Fitzgerald

Operator

Good day and welcome to the Hooper Holmes 2015 Fourth Quarter Financial Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Andy Berger. Please go ahead, sir.

Andrew Berger

Thanks, Ebony. On behalf of the management of Hooper Holmes, we are extremely pleased that you have taken the time to participate in our conference call and thank you for joining us to discuss the company's financial results for the fourth quarter and full year of 2015.

Before I introduce management, I would like to remind everyone that this presentation contains forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995 concerning the company's plans, objectives, goals, strategies, future events, or performances, which are not statements of historical fact and can be identified by words such as expect, continue, should, may, will, project, anticipate, believe, plan, goal, and similar references to future periods.

The forward-looking statements contained in this presentation reflect our current beliefs and expectations. Actual results or performance may differ materially from what is expressed in the forward-looking statements.

Among the important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements contained in this presentation are our ability to realize the expected benefits from the acquisition of Accountable Health Solutions and our strategic alliance with Clinical Reference Laboratory, our ability to successfully implement our business strategy and integrate Accountable Health Solutions business with ours, our ability to retain and grow our customer base, our ability to recognize operational efficiencies and reduce cost, uncertainty as to our working capital requirements over the next 12 to 24 months, our ability to maintain compliance with the financial covenants contained in our credit facilities, the rate of growth in the health and wellness market, and such other factors as discussed in Part 1, Item 1A, Risk Factors, and Part 2, Item 7, Management's Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2014.

The company undertakes no obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances or to reflect the occurrence of unanticipated events after the date of this presentation, except as required by law.

This presentation contains information from third-party sources, including data from studies conducted by others and market data and industry forecasts obtained from industry publications.

Although the company believes that such information is reliable, the company has not independently verified any of this information and the company does not guarantee the accuracy or completeness of this information. Any references to documents not included in the presentation itself are qualified by the full text and content of those documents.

During our prepared comments or response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results, such as references to EBITDA and other measures of financial performance.

Please be advised that the additional detail may be one time in nature and we may or may not provide an update in the future. These and other financial measures may also have been prepared on a non-GAAP basis. For some of these measures, a reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release that was issued this morning.

By now you should have received a copy of the news release, which was issued this morning and available on our website. You should also have received a copy of the slides accompanying management's presentation this morning, which is also available on the website.

Participating on the call today are Henry Dubois, Hooper Holmes's President and Chief Executive Officer and Steven Balthazor, Chief Financial Officer.

At this time, I'll turn the call over to Henry. Henry?

Henry Dubois

Thank you, Andy. And good morning, everyone. Please turn to slide 3 in the presentation that Andy referenced. As you do so, I'd like to make three points.

First, we believe the numbers we announced this morning show our business plan is working. Fourth quarter 2015 revenue grew 42% compared to fourth quarter 2014, screening units grew 20% and gross margin grew 22%.

In financial terms, 2015 was a record year for screening units and a record year for Health & Wellness revenues, marking our seventh straight year of Health & Wellness revenue growth.

The second point is that we expect to accelerate growth in 2016. We expect to increase revenues at least 30% in 2016 to $42 million or more and be EBITDA and operating cash flow positive for the full year.

We'll have more to say about our outlook later on in the call and I'd like to remind everyone our business is seasonal with much of our revenue coming during the second half of the year.

Third, we transformed our business in 2015. We acquired AHS, integrated it successfully, and now operate as one company with two distinct go-to-market strategies, one to serve channel partners and clinical research organizations with our screening offerings and one to serve direct customers with a full suite of wellness products.

We expanded our Health & Wellness scope and introduced new services. We signed new customers and closed deals, which we expect will increase 2016 revenues. We introduced new technology such as our Screening Pro application, which speeds data collection and enhances security, and we added a number of talented and motivated senior managers to our team.

The first quarter is off to a good start. We believe we have the business fundamentals we need to generate profitability as top line revenues grow. We also strengthened our capital structure this quarter, with both the rights offering and a private placement, which we announced this morning.

Before we discuss these subjects in more detail, let me turn it over to Steven for the numbers.

Steven Balthazor

Thanks, Henry, and good morning, everybody. Please turn to slide 4. As Henry mentioned, revenue in the fourth quarter of 2015 totaled $9.5 million, a 42% improvement over the fourth quarter 2014. Full year 2015 revenue totaled $32.1 million compared to $28.5 million for the full year 2014.

In addition, we have continued to add new customers with significant revenue contribution. In 2014, our three largest wellness customers represented 58% of our annual revenues. In 2015, our three largest wellness clients represented just 33% of our annual revenues. We believe this diversification strengthens our business.

As you can see on the bottom of the slide, we completed 152,000 screenings in the fourth quarter of 2015, a 20% improvement compared to 127,000 screenings in the fourth quarter of 2014. For the full year 2015, we completed 515,000 biometric screenings, an increase of 9% compared to 474,000 screenings in 2014.

In our 2015 first quarter conference call, we mentioned the end of a large clinical research study. As you can see here, that study contributed 30,000 screening units for the full year of 2014.

Adjusting for that study, our biometrics screening unit increased 14% for the full year. Unit growth in our wellness business offset expected reductions in the clinical research business in 2015.

We have since won a new multi-year contract from our client Westat valued at $12 million over the life of the contract. We expect this contract to contribute $800,000 in 2016 revenue.

Turning to slide 5, results on an adjusted EBITDA basis, excluding one-time events, improved 35% in 2015 compared to 2014. For the second half of the year, which is our busy season, adjusted EBITDA improved 61% compared to 2014. One-time events are detailed on the slide.

EBITDA results do not reflect $300,000 of fourth quarter clinical research billings, which will be recognized as we deliver against the contract in 2016. Customers also rescheduled approximately 30,000 screenings planned for the fourth quarter 2015 into new dates in 2016, both of these events impacted our drive to be EBITDA positive on a run rate basis exiting the year.

Turning to our balance sheet, our cash balances as of December 31, 2015 was $2 million, with $3.3 million in borrowings outstanding against our revolving credit facility. As of March 15, 2016, our credit availability was $1.1 million.

As you'll recall, our agreement with SWK may require the issuance of additional warrants due to the current lien structure. In February of this year, we amended our credit agreement to extend the deadline for issuing those warrants to April 30, 2016 to give ourselves more time to work through the lien structure.

And with that, I'll turn the call back to Henry.

Henry Dubois

Thanks, Steven. Please turn to slide 6. As I mentioned earlier, the first quarter 2016 is off to a strong start. Year-to-date, we have won new sales, which we expect to contribute at least $3.3 million in new revenues in 2016.

So far this year, we have added new direct customers with an estimated full-year revenue impact of $500,000. These are usually multi-year contracts, which give us a steady book of business over time.

We extended clinical research contracts for an estimated $900,000 in 2016. One of these contracts is our contract extension for the Westat research study, which we expect to generate $12 million in revenue over the life of the contract, as Steven mentioned.

We added new channel partners, with an estimated full year annual revenue impact of approximately $1.1 million and we added new end customers through our channel partners for estimated annual revenues of $900,000.

We believe we are well positioned to grow with our channel partners as these annual screening events repeat. We continue to be on track to generate at least $42 million of revenue in 2016 and be EBITDA and operating cash flow positive for the full year.

Turning to slide 7, last year we announced an initiative to raise equity through our rights offering. This offering raised $3.5 million and was successfully completed in January 2016.

The rights offering generated strong interest and shareholder support. The board and management exercised their over-subscription rights. Our board and management as a group now hold approximately 10% of all shares outstanding. In total, over 300 individual shareholders participated, with many also exercising their over-subscription rights.

We continue to improve our access to capital. This morning, we announced a $1.2 million investment by 200 NNH, LLC, an affiliate of Kanon Ventures. This is a private placement for 10 million shares at $0.12 a share, with an 18 month lock up period.

Kanon is a private equity firm with deep healthcare experience. Their principals and management team have owned and operated hospitals, medical groups, and other medical facilities and they believe the health and wellness sector has an important and expanding role to play in the health care delivery system. We look forward to benefiting from their experience and their track record in building long-term value.

New capital supports our growth, operations and services debt obligations associated with the credit agreement we executed with SWK on April 17, 2015. That credit agreement provided a $5 million term loan for the AHS acquisition and general corporate purposes with $2.3 million of principal repayments in 2016.

As we discussed, we have principal payments coming due of roughly $600,000 per quarter. However, our first quarter 2016 payment was about $500,000 based on the formula in the contract. We expect quarterly payments of $600,000 going forward.

We are always looking at ways to improve shareholder value and we are focused on executing our business plan. We are also exploring options to address the NYSE stock price issue.

We are working our way through the analysis and have yet to make any decisions. Once complete, we will seek shareholder approval for the plan as needed, which will most likely be at our upcoming annual shareholder meeting.

Turning to slide 8, our expanded Health & Wellness offerings have been well received. The chart on this slide shows why customers value our programs. We improve health outcomes and reduce employer costs.

You can see the value for employers on this slide. We are showing you the results of a program put in place for a client with 7,500 employees participating. On the left, we show the start of the program. When the program began, 76% of employees were classified as low health risk, 20% at moderate risk, and 4% at high risk. Those are the green, orange, and red groups on the left.

About 300 people were in the high risk red pool when the program began. After 24 months, Hooper's wellness program helped 1,100 people measurably reduce their health risks. On a net basis the high-risk, high cost pool shrunk by 30%.

As a result, healthcare costs dropped significantly. Based on the average cost per group, this employer reduced annual healthcare costs by nearly $1.5 million. Those hard cost savings do not include the added benefits of higher productivity, reduced absenteeism, and retaining top talent.

Turning to slide 9, we believe 2015 was a transformational year. We completed the integration of AHS and the momentum in our business has increased dramatically. Sales closed in 2015 are expected to drive $7 million in new revenue this year.

We believe 2016 is off to a strong start. We raised $3.5 million in new capital in the first quarter through our rights offering and received a new $1.2 million investment from 200 NNH, an affiliate of Kanon Ventures.

We have also won an estimated $3.3 million of new 2016 revenue from this quarter's sales efforts, including the addition of new full service wellness clients and channel partners.

Our business plan is focused on achieving annual revenue growth rates of 25% or more. As we have stated before, for full year 2016, we expect to achieve at least $42 million in revenue and we are progressing towards our annual goal. At this level of revenues, we expect to be EBITDA and cash flow positive for the full year.

Over the last few months, we've taken steps to raise awareness of Hooper Holmes among investors, both new and existing and plan to continue building awareness. On Thursday, I'll be speaking at the Sidoti Emerging Growth Conference in New York and I'll be meeting with investors in Chicago the following week.

Our presentation at these conferences, such as the LD Micro Conference in December and the SeeThruEquity Conference in February have been well received. We are fully focused on executing our business plan, delivering results, and increasing shareholder value. I'm looking forward to informing you of our continued progress throughout the year.

And now, Steven and I would be glad to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we'll move to our first question from Joe France with Cantor Fitzgerald. Caller, your line is open. Please go ahead.

Joe France

Great. Thank you very much. Henry, would you mind just walking through the pro forma for the two transactions. Just trying to check my math for how much cash you have at the end of - or currently on a pro forma basis and what debt would be?

Henry Dubois

Sure. Thanks, Joe, and good morning. In the rights offering, we raised $3.5 million of cash, and in the Kanon Ventures, our private placement we raised $1.2 million. So in the first quarter of this year we've brought in $4.7 million of new equity.

In the first quarter, we also did pay back $500,000 of debt to SWK and we also continued, through our Eries [ph] asset-backed facility. We continue to kind of - that's a revolver. So that constantly - we go in and out of that against our receivables.

Joe France

So then cash is what about $6 million, and debt is $4.9 million or about $5.0 million?

Henry Dubois

Well, we would have had - on the SWK debt at the end of - if you take the pro forma, you would take the $5 million down by the $500,000. On the cash that came in, we also would have been reducing the amount of debt that we had to Eries.

At the end of the year, we had about $3.3 million of debt. We also had payables and other things. So we're not forecasting our quarter end cash at this point, but we did use cash to manage some of those payables.

Joe France

Thank you, Henry.

Operator

[Operator Instructions] And we have no further telephone questions at this time. I'd like to turn the conference back over to Henry Dubois for any additional or closing remarks.

Henry Dubois

Thank you, Ebony. And I'd like to thank all of the participants on this call. Appreciate your time and to all our shareholders who participated in the rights offering and those that didn't, we appreciate your support. And we look forward to continuing to discuss our progress as we go through the year. Thank you very much.

Operator

And this will conclude today's call. Thank you for your participation. You may now disconnect.

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